1. Solvency Ratio It is also called as leverage ratio, which measures the long-term obligation of the business concern. This ratio helps to understand, how the long-term funds are used in the business concern. Some of the solvency ratios are given below: S. No Ratio Formula External Equity Debt-Equity Ratio Internal Equity 2 Proprietary Ratio Shareholder/Shareholder's Fund Total Assets EBIT Interest Coverage Ratio Fixed Interest Charges Profitability Ratio Profitability ratio helps to measure the profitability position of the business concern. Some of the major profitability ratios are given below. 3. t3 S. No Ratio Formula Gross Profit 1. Gross Pratit Ratio x100 Net Sales Net Profit after tax 2 Net Pratit Ratio 100 Net Sales Operating Net Profit Operating Protit Ratio x 100 Sales 4. Return in Investment Net Profit after tax 100 Shareholder Fund Exercise 6 From the following bulance sheet of Mr. Arvind Industries Ltd., us 31st March 2007 Liabilities Rs. Assets Rs Equity Share Capital 10,000 Fixed assets des 26.000 7% Preference Share Capital 2.000 depreciation Rs. 10,000) Reserves and Surplus 8,000 Current Assets 6% Mortgage Debentures 14,000 Cash 1,000 Current Liabilities: Investments (10%) 3,000 Creditors 1,200 Sunday debtors 4,000 Bills payable 2,000 Stock 6,000 Outstanding expenses 200 Tax Provision 2.800 40,000 40,000 Other information: 1. Net sales 2. Cost of goods sold 3. Net income before tax 4. Net income after tax Calculate appropriate ration. Rs. 60,000 Rs. 51,600 Rs. 4,000 Rs. 2,000